NSE a trailblazer in Africa

By Job Kihumba

When people live through history, they are likely to miss it, only for it to be written by others who, quite often, don’t get it quite right, the way it was.

Sometimes history is distorted by either lack of correct information or intentionally by the writers, for whatever reasons.

I think we have passed through an important period in the history of the Nairobi Securities Exchange, until recently called the Nairobi Stock Exchange or simply the NSE.

This write up is not about the history of the NSE. This is just some brief recollection of some events and people who I met or interacted with in my over 25 years of direct or indirect involvement with the NSE.

Let me begin somewhere at The Stanley Hotel sometimes in September 1987. I am there at 10am on a Thursday, the weekly “callover” day.

Callover was a session where stockbrokers compared prices and other trading information for the transacted positions in the previous five trading days since the last callover session.

There are representatives of the six stockbrokers seated around a table at the mezzanine floor, at one corner, later named the Exchange Bar. I can clearly see the late Mr. Tarochan S. Chana on the Chairman’s seat.

The late Chana was a director at Francis Thuo & Partners Limited. The sessions’ chairmanship would rotate among the six stockbrokers and this was his turn.

The six stockbroking firms were: Francis Drummond & Company Limited, Dyer & Blair Limited, Francis Thuo & Partners Limited, Chandulal Shah, Ngenye Kariuki & Company and Nyaga Stockbrokers Limited.

Francis Drummond was the oldest firm and at the time, the most successful. Housed at the Queensway House, its Managing Director was the late Mr. Lawrence Ellis Sutcliffe.

That morning Mr Sutcliffe was not there if I correctly recall. His firm was represented by Mr Chavda. If space would allow, the description of these early market players who I came to know better in the years that followed, would form interesting reading.

But I must mention one Mr David Titus Nyaga (later dropped the first two names to become Mr Nyaga Mbogo). Mr Nyaga had a long beard which he stroked severally, obviously quite proud of it.

He sat at one end of the table and said little. The striking recollection of that day was that he announced one trade that he had transacted over the week. His firm, Nyaga Stockbrokers, was the newest out of the six firms. Sadly that firm, under new management, collapsed in 2007.

In July 1990, the scenario is quite different. I stand before some blackboards at the IPS Building, Second Floor. The trading system has changed to “open outcry” with daily trading sessions running between 10am and 12noon.

Persons with buy or sell orders shout their positions and these are recorded with chalk on the boards and where there is a match, a trade is struck.

This method would continue until mid 1994, when the NSE moved to the Mezzanine floor of the Nation Centre. The boards changed from blackboards with chalk to white boards with coloured markers.

The board writers now wear green jackets and the “dealers” are in red jackets shouting their orders. But NSE did not go to Nation Centre before going through a revolutionary trading in “Forex Cs”.

At the end of the 1991, Kenya had serious problems with the IMF and foreign currency was in short supply.

There was a huge difference between the official exchange rate, which was then tightly controlled, and the backstreet (black market) rate.

And there was a lot of “illegal” dollars out in the streets. The government devised a way of capturing some of this and channelling into the mainstream.

So anyone who could prove that he or she had received some foreign currency would surrender the currency and would in its place receive a foreign exchange certificate.

This was a “bearer” certificate and anyone holding the certificate would, as foreign currency need arose, go to the Central Bank and recover the equivalent amount of foreign currency.

Soon, there was a market, a very vibrant market of these certificates, on the NSE.

Fast backwards to 1954 and some white businessmen and professionals, having been trading shares informally for several decades, and led by one Mr Francis Drummond, decide to form as association to formalise their trading.

And this became the foundation of the NSE but it was a privileged club of white men, for Africans could not “afford” to buy, not to mention that the products were “too complicated” for their ‘uneducated” minds.

But a decade later, Kenya became independent and immediately the market was opened up to all.

But not many shares were available and so the new independent government of Mzee Kenyatta in 1967 creates a company, the ICDC Investments Limited, a subsidiary of the Industrial and Commercial Development Corporation, ICDC, to encourage Africans to buy listed shares.

In 2007, it changed its name to Centum Investment Limited. This process seems to have worked spectacularly because in 2006, in an Initial Public Offer by the Kenya Generating Company, KenGen, over 200,000 individual investors from all over the country applied for shares.

This was followed two years late in 2008, by nearly a million individual shareholders trying to get a piece of the Safaricom share offer.

The first African stockbroking firm was established by the late Francis Mwangi Thuo who became the first African Chairman of the NSE in 1969 and the tradition of trading in shares was picking up well among the Africans.

In the years that followed, many companies were listed and by 1971, there were as many as 71 listed companies from across East Africa. The market thrived.

But hard times lay ahead. In 1975, the government needed to raise more tax revenue and introduced the Capital Gains Tax, at 35 per cent. Trading virtually stopped.

And the final blow came in 1977 when the Kenya-Tanzania border was temporary closed and the showcase East African Community collapsed.

The market would remain depressed until 1985, when the Capital Gains Tax was suspended and Government privatisation programme begun.

In July 1990, the Association of Stockbrokers decided to re-structure and formed a company limited by shares (demutualized), the Nairobi Stock Exchange Limited.

I was charged with setting up its first secretariat and was formally appointed its Chef Executive in April 1991.

Thereafter we witnessed some of the most momentous milestones, which are well documented in the history of the NSE. By 1994, NSE had risen in prominence to be rated by the IFC as the best performing market, in dollar terms, in the world.

Some names cannot go unmentioned during this decade of the nineties: Mr. Ngenye Kariuki, who was Chairman for more than a decade up to 1993 and foresaw the thinking for the creation of the Africa Stock Exchanges Association (ASEA) in Nairobi.

Mr Jimnah Mbaru, who took over as Chairman in 1993 of the NSE and first Chairman of ASEA. He remained Chairman for more than a decade and oversaw most of the developments of the 1990s and early 2000s.

Dr Darin Gunesekera from Sri Lanka, played a major role in helping us create the technical capacity we needed most. He was full of humour and often laughed at his own jokes until tears rolled.

Mr Robert Mathu, current the CEO of the Rwanda Stock Exchange, together with Ms Cecilia Njoroge, were some of the first employees of the NSE. Though fresh from college, they served with dedication and commitment despite odds.

In hindsight, NSE has been a trailblazer of no mean feat in Africa and actually helped in the creation of other stock markets in Africa: Ghana, Uganda, Tanzania, Rwanda to mention some who benefited in their formative years and many indirectly through ASEA which was founded in Nairobi.

It is befitting that on the occasion of the NSE 60th anniversary, the ASEA 18th annual conference, 2014, comes back to Nairobi.